Dollar cedes overnight gains, Asia stocks mixed as Fed looms large

The dollar ceded some of its overnight gains on Wednesday while Asian stocks put in a mixed display as traders weighed the odds of a super-sized Federal Reserve interest rate cut later in the day.

The US currency dropped back sharply against the yen, handing back a third of its rally from Tuesday, when unexpectedly robust US retail sales data was taken as weakening the case for aggressive Fed easing.

The euro also advanced, clawing back almost all of the previous day's decline.

The chances of the Fed kicking off its easing cycle with a super-sized cut of 50 basis points (bps) oscillated in Asia, retreating to 63per cent early in the day from 67per cent around the same time on Tuesday, according to LSEG data. However, as of 0137 GMT, the odds were back at 65per cent.

 

Japanese shares were alone in posting strong gains in the region, with the Nikkei stock average climbing 0.72per cent to erased Tuesday's 1per cent slide, as the benchmark index continued to be influenced by the dollar-yen exchange rate.

Mainland Chinese blue chips opened flat after coming back online following a holiday-extended weekend, and Taiwan also returned from a day off to trade 0.35per cent weaker. Australia's benchmark was little changed.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.05per cent.

Hong Kong and South Korea were among major markets closed for holidays.

Wall Street finished nearly unchanged on Tuesday, failing to sustain early momentum that pushed the S&P 500 and Dow to record intraday highs. S&P 500 futures pointed 0.08per cent higher on Wednesday.

"The (US) price action conveys the significant inflection point markets confront," said Kyle Rodda, senior financial market analyst at Capital.com.

"If the Fed nails it at this meeting, the bull market could charge on. If it doesn't, then it could signal a high water mark in this cycle."

The dollar dropped 0.55per cent to 141.60 yen, although that followed a 1.26per cent surge overnight.

The euro added 0.12per cent to $1.1128.

The dollar index eased 0.07per cent to 100.84, after a 0.3per cent rally on Tuesday.

Short-term Treasury yields continued to rise though, with that on the two-year note adding another basis point to stand at 3.6028per cent in Asian time.

Gold found its feet, rising 0.15per cent to $2,573.18 per ounce after slipping back from an all-time high in the previous session.

Crude oil was steady after gaining about $1 a barrel on Wednesday amid escalating tensions around the Middle East.

Militant group Hezbollah vowed retaliation against Israel after pagers detonated across Lebanon on Tuesday, killing at least eight people and wounding nearly 3,000 others.

Meanwhile, the UN's Libya mission said factions did not reach a final agreement in talks aimed at resolving the central bank crisis, which has slashed oil output and exports.

US crude futures eased 13 cents to $71.06 in the latest session, and Brent crude futures edged down 14 cents to $73.56.